# Petition for Writ of Certiorari — Ellis v. Cates > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386417_0871%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1951 - **Citation:** 342 U.S. 870 ## Text IN THE Hupreme Court of the Gnited States Ocroser Term, 1951. No. 340 Jutivus Hyman & Company, a Corporation; Jutrus Hyman, individually and as President and Director of Julius Hyman & Company; Roserr Sizser, individually and as Secretary and Director of Julius Hyman & Com- pany; Cuagtes A. Beckwith, Danie, E. Bonnet; Nicx D’Amore; Ase DanisH; Epwarp Despres; Henry Dupiak; Ernest Frermeicy ; Rex E. Livov; Wim E. McCavtzey; THomas McKenna; Roy J. Mituer; Steve Pocstk; Howarp Rosensaum; Yust Tasima; James F. Warre; Farrz Worr and Sron Zevin, Petitioners, Vv. Vetsico: Corporation, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE SUPREME COURT OF THE UNITED STATES AND BRIEF IN SUPPORT. CLAUDE PEPPER, Attorney for Petitioners. Passs or Byron S. Apams, Wasurrcton, D.C IN THE Supreme Court of the Anited States Octoser TrERM, 1951. No. Jutius Hyman & Company, a Corporation; Jutius Hyman, individually and as President and Director of Julius Hyman & Company; Roserr Sizser, individually and as Secretary and Director of Julius Hyman & Com- pany; Cuartes A. Beckwith, Danie, KE. Bonnett; Nicx D’Amore; Ase DanisH; Epwarp Despres; HENry Dupiak; Ernest Frerreicn ; Rex FE. Linvov; Wii EF. McCautey; THomas McKenna; Roy J. Miniter; Steve Pocstk; Howarp Rosensaum; Yugi Tagrmma; James F. Waite; Frirz Wor and Simon Zevin, Petitioners, V. Veutsico, Corporation, Respondent. PETITION FCR WRIT OF CERTIORARI TO THE SUPREME COURT OF THE UNITED STATES AND BRIEF IN SUPPORT. To the Honorable Chief Justice of the United States and to the Associate Justices of the Supreme Court of the United States: Your petitioners above named, Juttus Hyman & Co., ET AL., pray that a Writ of Certiorari issue to the Supreme Court of the State of Colorado to review the judgment of EE ee Rn IRI ee mM Ste Oe ree nee Ome ie 2 that Court filed as modified June 25, 1951, affirming and modifying a decree of the District Court of Denver, Colo- rado, awarding a decree against petitioners in a sum exceed- ing one million dollars and granting an injunction against petitioner’s use of certain formulas and processes for the manufacture of an insecticide known as chlordane. SUMMARY STATEMENT OF THE CASE. The events culminating in this petition began with a joint venture aptly characterized by the trial judge ix this case as follows: **One man had the brains and the other had the money, and one furnished the brains and the other furnished the money. The man who furnished the genius had no capital, as I understand it, and that relationship con- tinued and was built up from, you might say, an actual capital outlay of $16,000 to a potential of over a million dollar concern.”’ (R. 2, fol. 3361) The man with the brains was Dr. Julius Hyman, a bril- liant 29 year old chemist who in 1931 had two patent appli- cations pending covering uses of certain polymers which he had discovered in the residue from the refining of gasoline from crude petroleum. The product covered by the appli- cations for patents was a synthetic fast drying oil substan- tially equivalent to linseed oil. (R. 2, fols. 798-805) The man with the money was Joseph Regenstein, a cousin of Hyman, whom Hyman approached with the proposal that they develop the subjects of the Hyman patent applica- tions. (R. 2, fol. 807 ) Regenstein agreed with Hyman to enter upon the joint venture of developing the subjects of the two applications. Regenstein, his lawyer and an asso- ciate worked out the corporate structure Regenstein and Hyman were to employ in the enterprise. (R. 2, fol. 1526, 1675) They organized a corporation, known first as Varnoil Corporation and later as Velsico] Corporation, with $20,000.00 capital stock, $16,000.00 of which was issued for cash to two of Regenstein’s corporations, Transo Cor- = ) poration and Arvey Corporation, and $4,000.00 to Hyman in return for the assignment of his two patent applications to the corporation. (R. 2, fols. 1518,1519) Hyman was not entirely satisfied with his 20 percent of the company for his two patent applications in view of the small capitaliza- tion, but he accepted the arrangement. (R. 2, fol. 2339) Regenstein became the President of the corporation and was consulted in financial matters. (R. 2, fol. 1557) Hyman became Executive Vice-president and Director of Research, and was its actual operating head. (R. 2, fols. 1517, 1557) The organization and operation of the business were con- ducted somewhat informally, with few formal meetings of stockholders or directors. (Ex. 13) After a slow beginning the business progressed; in 1937 Velsicol completed a plant at Marshall, Illinois. In order to meet operating deficits and finance the building of the plant, Regenstein’s two corporations loaned substantial sums to Velsicol. (R. 2, fols. 934-936) During these years Hyman contributed many inventions to Velsicol. (R. 2, fol. 2162) In the early forties the company began to earn profits, and by 1943 it had erased its operating deficit. (R. 2, fols. 944, 2162, Exs. 22-25) In 1943 Hyman invented a process for production of vitamin K, a blood clotting vitamin. (R. 2, fol. 2159) By this time he had assigned 37 of his inventions to Velsicol without consideration and Velsicol was at iast in sound financial condition. Hyman notified Regens‘ein that he would not assign this or future inventions to Velsicol unless he was compensated in some way. (R. 2, fols. 2162-65) Regenstein insisted that Hyman continue to assign patents and assured him that his greater participation in the com- pany ‘‘would be worked out to his satisfaction.’”’ (R. 2, fols. 1735, 1742) Hyman, in reliance upon this assurance of Regenstein, assigned this patent application and others in due course until 1945. (R. 2, fols. 2167, 2377) In that year, Hyman invented an insecticide, now known as chlordane, tests of which showed great promise. (R. 2, fol. 964) Patent applications were duly filed for the inven- a tion in this country (R. 2, fol. 964); petitioners offered proof of the filing of similar applications in England, Bel- gium and several other foreign countries and of the publica- tion of the invention in Belgium in April and May 1946 and in England in January 1947. (R. 2, fols. 3007-15, R. 5, fols. 3573, 3580, Exs. 34-36) Hyman did not assign the patent applications for this invention. In 1946 he demanded of Regenstein, as a condition of assigning this invention, an increased interest in the com- pany. (R. 2, fols. 2206-8) Regenstein insisted that the invention be assigned and represented that the increase in interest would then be discussed and arranged. (R. 2, fols. 1568, 1705) In view of the 1943 incident Hyman refused to rely on this representation. Both Regenstein and Hyman consulted attorneys. (R. 2, fols. 1756, 2229-3, 2389) Hyman was advised by counsel that he was justified in his conten- tion that he was not obligated to assign these applications, and continued his refusal. (R. 2, fol. 2389, 2390) On Sep- tember 13, 1946, Regenstein formally demanded of Hyman that he assign them or resign. (R.2, fol. 2225) Hyman re- signed. Shortly thereafter the directors controlled by Reg- enstein voted to initiate suit in Illinois against Hyman for the assignment of these insecticide patent applications and the corporation brought suit. (Ex. 13) Early in December 1946 Regenstein brought about a re- capitalization of Velsicol whereunder shareholders were | privileged to buy 34 new shares for each share held. (R. 1, fols. 348-63, Ex. 13) Regenstein’s two corporations paid | for their stock with their notes of the corporation which then totaled $528,000.00, Hyman was unable to raise $136,000.00 to exercise his warrants. The new stock was issued at $10.00 per share rather than at a price equal to the actual value of the outstanding shares, which was in excess of $1000.00 per $10.00 par share (R. 2, fol. 1691), or even at their book value, in excess of $150.00 per share. (Ex. 28) The result of the recapitalization was that Hyman’s equity in the company was reduced from 20 per- a cent to less than 1 percent, and the book value of his inter- est was reduced from approximately $70,000.00 to less than $7,000.00, and its actual value reduced in the same propor- tion and in an even greater amount. Of this transaction the trial court in this case said: 5 ““* * * In other words, assuming he (Dr. Hyman) is wrong, this thing of just one man turning over and wiping him out by a twist of the wrist because he has the money, because he has the credit, because he has the control. After he comes at odds and ends with Dr. Hyman, he turns the switch over night and Dr. Hyman has one percent. His profits are based on that, whereas before it was based on 20 percent.’’ (R. 2, fol. 3196) * * * * * * * * * ‘““* * * it appeals to me that if they (these facts) are true that Dr. Hyman is being wiped out. And, as a Chancellor sitting in a Court of Equity, that does not appeal tome. Assuming this corporation was indebted to the extent that it was, it appears now that it has now become a solvent, money-making concern; and that by a twist of the finger, so to speak, what was a debt is | being fostered into a money-making apparatus; instead of giving 4% the money is being turned in to wiping out Dr. Hyman’s interest, and take any profit that he might earn to make that loan make money in excess of the interest. It just does not appeal to me, gentle- men.’’ (R. 2, fols. 3186, 3187) Thus after having contributed 15 years of his life and many valuable inventions to this highly successful venture of which he was unquestionably the key figure, Hyman emerged with only an insignificant stock interest greatly re- duced even from the admittedly insufficient interest he had theretofore owned, jobless and faced with the necessity of defending a suit for the assignment of the chlordane pat- ents. In the late fall of 1946 Hyman located and leased a war surplus plant in Denver, Colorado, organized Julius Hyman & Co., and by March of 1947 was in production of chlordane. (R. 2, fols. 1010-24) 6 On April 11, 1947, Regenstein had Velsicol file his suit in the District Court of the City and County of Denver, Colo- rado, against Hyman, his corporation and a number of former Velsicol chemists and employees who had left to join Hyman in Denver. The complaint alleged that chlor- dane belonged to Velsicol ; that Hyman signed an agreement dated January 31, 1931 ‘that any and all inventions, im- provements, discoveries, formulas or processes relating to oils, paints, varnishes or any of the ingredients or products thereof or relating to the manufacture or production of oils, paints, varnishes or any of the ingredients or prod- ucts thereof, invented, discovered or learned by the under- signed during the term of his employment by the company— will U2 the sole and absolute property of the company— | and the undersigned at all times, both during his employ- ment and after the termination of his employment, will keep all of the same secret from everyone except the com- pany .. .’’; that the other individual defendants signed certain secrecy agreements with Velsicol; that they and Hyman were also bound by confidential relations not to disclose their knowledge of chlordane; and that Julius Hyman & Co. acquired the process by the disclosures of Hyman and the other defendants in violation of their secrecy agreements and with notice of such secrecy agree- ments. The bill prayed for a decree awarding Velsicol all the profits made by Hyman & Co. from the sale of chlor- dane, damages, and an injunction against the defendants’ producing chlordane. (R. 1, fols. 1-82) In his answer Hyman denied signing any agreement with | Velsicol, admitted that Velsicol had shop rights authorizing it to continue to manufacture chlordane but asserted that he ES Ft ga et i 2 ° ail — — PEE LIEN 7 The answer of Julius Hyman & Co. adopted the defenses of Hyman’s answer. (R. 3, fols. 298-303) The other in- dividual defendants, while admitting the signing of secrecy agreements, in all other respects joined in the defenses stated in Hyman’s answer. (R. 2, fols. 305-319) The District Court granted the injunction, decreed that Julius Hyman & Co. pay damages and account for all its profits from chlordane to Velsicol, and granted other relief. The accounting resulted in a judgment for $1,559,063.30 profits and $100,000.00 special damages for reducing the price of chlordane. The Supreme Court of Colorado affirmed the lower Court, modifying the accounting judg- ment to a net sum of $1,238,789.10 profits and $100,000.00 damages. The decree of the District Court was based on its finding that Hyman ‘‘agreed to devote his time to said corporation (Velsicol) as a chemist perfecting the ideas contained in said patent applications (referring to the two petroleum by-products applications assigned in 1931), and to devote his time amd efforts to develop new uses for petroleum re- fining by-products at a salary to be agreed upon from time to time as the condition of the company might warrant, and that all invertions and discoveries (pertaining to uses of petroleum refining by-products) were to be kept secret and assigned to the plaintiff corporation ‘(italics and material in parenthesis ours); that the other individuals signed agreements to keep secret the products of Velsicol; that Hyman converted Velsicol’s property; that all the individ- ual defendants breached their secrecy agreements ; and that Julius Hyman & Co. was unlawfully appropriating Velsi- col’s trade secrets to its own use. (R. 2, fols. 3373-94) During the trial the Court sustained objection to petition- ers’ offer of evidence of the British patent applications and consequent publication of chlordane, making the process a part of the public domain (R. 2, fol. 3183) ; subsequent to the trial the Court denied petitioners’ motion, based on an affidavit of the Belgian patent disclosures and others, to dissolve the in 3570, 3643) The Supreme Court of Colorado sustained these findings of the trial court and made the additional finding, expressly rejected by the trial court, that Hyman and the other in- dividual defendants were bound by their confidential rela- tions with Velsicol not to disclose chlordane. It affirmed the rejection of their evidence of publication on the ground that they were estopped to take advantage of the publica- tion of the invention. (R. 6, p. 54) Meanwhile, in the Velsicol suit against Hyman in Illinois, for assignment of the chlordane application, the Supreme Court of Illinois had entered a judgment, which has become final, reversing the Appellate Court of Illinois, First Dis- trict, and requiring Hyman to assign. Meanwhile, also, Hyman had sued Velsicol and Regen- stein and the other directors to set aside the recapitaliza- tion on the ground of fraud. In that case the Appellate Court of Illinois, First District, had entered a judgment, which has become final, reversing the Superior Court of Cook County, Tlinois, and dismissing Hyman’s complaint on the ground that the recapitalization was justified by the high ratio of debts to capital stock which had existed prior thereto, and was not fraudulent as to Hyman because he was offered an opportunity to purchase additional shares pro rata. Thus the Supreme Court of Colorado would write an end to thé venture of Regenstein and Hyman with Regenstein owning the very profitable property of the venture, includ- ing forty of Hyman’s inventions; with Regenstein having a judgment of over a million dollars against Hyman, his company and associates; with Hyman’s new business for developing his invention destroyed and Hyman enjoined from the use of his own invention. In short Hyman will have been ensnared in Regenstein’s corporate web and financially devoured. junction and find no damages. (R. 5, fols. ae 9 JURISDICTION. This Court has jurisdiction under 28 U. S. C. Section 1257, subsection (3), because the Colorado Supreme Court refused to allow petitioners the right to present the evi- dence which would have voided the agreement not to dis- close a trade secret which the Court enforced in its decree, thus violating the Sherman Act. (15 U. S. C. Section 1) That is, the agreement the Court enforced, being in re- straint of trade, was valid only if it involved a trade secret. Yet the Court refused on the ground of estoppel to allow petitioners to present evidence to show no trade secret ex- isted because the same had been eliminated by publication. Cases relied on to support jurisdiction on this ground in- clude MacGregor v. Westinghouse Electric and Manufac- turing Co., 329 U. S. 402 (1947) ; Sola Electric Co. v. Jeffer- son Electric Co., 317 U. S. 173 (1942); Nutt v. Knut, 200 U.S. 13 (1906) ; Conmar Products Corp. v. Universal Slide Fastener Co., 172 F. 2d 150 (C. A. 2d, 1949). This Court has jurisdiction of this cause under the same section for the further reason that petitioners claim under the Fourteenth Amendment to and the commerce clause of the Constitution of the United States (Article 1, Section 8, clause 3) the right to manufacture and sell in interstate commerce a product of petitioner Hyman’s own invention of which right the judgment of the Supreme Court of Colo- rado deprives them without any evidence that Hyman pre- cluded himself from the exercise of that right by agree- ment and without any basis in law for the Court’s holding that under the facts of this case Hyman was precluded by his relations with Velsicol from its exercise. Cases relied on to support jurisdiction on this ground in- clude United Gas Public Service Co. v. Texas, 303 U.S. 123 (1938) ; First National Bank of Hartford, Wis. v. City of Hartford, 273 U. S. 548 (1927); Southern Pacific Co. v. Schuyler, 227 U. S. 601 (1913); United States v. Joint Traffic Ass’n., 171 U. S. 505 (1898) ; Butchers’ Union Slaughter House & Livestock Landing Co. v. Crescent City 10 Livestock Landing & Slaughter House Co., 111 U. S. 746 (1884), The judgment of the Supreme Court of the State of Colo- rado was entered May 28, 1951, (R. 6, p. 19), and its order denying petition for rehearing and modifying its opinion was entered June 25, 1951. (R. 6, p. 18) QUESTIONS PRESENTED. 1. Is the judgment of the Supreme Court of Colorado in conflict with the anti-trust laws of the United States in restraining competition in subject matter not covered, at the time of the breach of any fiduciary or contractual obli- gation, by a subsisting trade secret? 2. Was a rule of estoppel properly invoked to exclude evidence of the non-existence of the secrets as a result of public disclosure, in enforcing a contract in restraint of trade whose validity as an exception to the anti-trust laws is based upon the protection of trade secrets? 3. Does the judgment of the Supreme Court of Colorado deprive petitioners of their constitutional right to engage in interstate commerce in that it is based upon a finding, that the secrecy agreement found to have been executed by Hyman with respondent covered his invention, chlordane, which is without evidence to support it? 4. Does the judgment of the Supreme Court of Colorado deprive petitioners of their constitutional right to engage in interstate commerce in that it is based upon a finding, that petitioner Julius Hyman executed a secrecy agreement with respondent covered his invention, chlordane, which is against the weight of the evidence? 5. Does the judgment of the Supreme Court of Colorado deprive petitioners of their constitutional right to engage in interstate commerce in that it is based upon a finding, that petitioner Julius Hyman was bound by his relations with respondent not to disclose his invention, chlordane, which was erroneous as a matter of law? Sete ae eee CNA PRAEGER TR ILI RIESE AAG NIE WEP I fe TAM OR RIES RS ORR 23 tions ever getting into the public domain. No witness was put on the stand. No question was asked. Nothing was done except to offer the four documents. This does not amount to an offer of proof. Wigmore on Evidence, 3rd Ed., See. 17. Defendants’ argument that the Colorado District Court denied to them the right to present evidence to show that plaintiff’s trade secrets were in the public domain by reason of the alleged disclosures in foreign countries is an attempt to build a federal question out of nothing. A federal question resting on a false assumption is clearly deviod of merit. Parker v. McLain, 237 U. S. 469, 473. The Colorado courts considered all of the evidence that was offered by the defendants on the issue of whether plaintiff had trade secrets which equity would protect. These courts decided that the formulas and processes relating to chlordane were trade secrets belonging to plaintiff, that plaintiff had done nothing to disclose these trade secrets to the public, that the secrets of chlordane were not in the public domain, and that Hyman and his confederates wrongfully appropriated these secrets to their use and gain in violation of their contractual and fiduciary relations to plaintiff. These are clearly questions of general law and not of federal law. (Bell Telephone Company v. Pennsylvania Public Utility Commission, 309 U.S. 30, 32; Kerfoot v. Farmers, etc. Bank, 218 U.S. 281, 288; King v. West Virginia, 216 U.S. 92, 100; Mam- moth Mining Co. v. Grand Central Mining Co. 213 US. 72, 77; Christman v. Miller, 197 U.S. 313, 319.) Where the decision of a state court rests on adequate non-federal grounds, this Court will not review the decision. (Herb v. Pitcairn, 324 U.S. 117, 126; Southwestern Bell Tele- 24 phone Co. v. Oklahoma, 303 U.S. 206, 212; Fox Film Corp. v. Muller, 296 U.S. 207, 210; Lynch v. New York, 293 US. 52, 54; Richardson Machine Co. v. Scott, 276 U.S. 128, 133; Enterprise Irrigation Dist. vy. Canal Co., 243 U.S. 157, 163-5; Bacon v. Texas, 163 U.S. 207, 216; California Powder Works v. Davis, 151 U.S. 389, 393.) Where a state court decision rests on an adequate non-federal ground this Court is not concerned with the correctness of the decision. Worcester County Trust Co. v. Riley, 302 U.S. 292, 299; Great Northern Ry. Co. v. Sunburst O. & R. Co. 287 U.S. 358, 365; Nickel v. Cole, 256 U.S. 222, 225; Arkansas Southern R. Co. v. German National Bank, 207 U.S. 270, 275. The second ground brought forward by petitioners (p. 9) to find some peg on which to hang the question of the jurisdiction of this Court is even a greater sham. The decree of the Superior Court of Cook County, Illinois, (R. V, 10-12,) affirmed by the Supreme Court of Illinois, (405 Ill. 352.) and which this Court refused to review, (339 U.S. 966,) settles beyond dispute that ‘‘Hyman pre- cluded himself from the exercise of that right [right to make and sell chlordane] by agreement’’ and ‘‘that under the facts of this case Hyman was precluded by his rela- tions with Velsicol from its exercise.’’ These questions cannot he relitigated. In disposing of the contention that the District Court erred in excluding the proffered exhibits, the Colorado Supreme Court applied the familiar rule that one cannot take advantage of his own wrong. It found that Hyman had complete control of the filing and prosecution of the foreign applications covering chlordane, (R. VI, 26,) that if any disclosures of trade secrets resulted from the co etnies ey hep "7 ‘ BEETS ee ENERO ROT TAG AERA SP a 25 operation of law in these foreign countries upon said applications Hyman is directly responsible for such dis- closures, (R. VI, 38,) and that the conduct of defendants in betraying the confidence of plaintiff and in appropriat- ing to their own use and benefit plaintiff’s trade secrets is abhorrent to its conception of ordinary honesty. R. VI, 51-55. Defendants advance the novel theory, rejected by the Colorado courts and by every court that has ever con- sidered the question, that an employee who learns his employer’s trade secrets in confidence may insulate him- self against a decree of injunction and accounting by making a disclosure of his employer’s secrets before he appropriates them to his use and profit. The mere state- ment of the proposition is its own best answer. It appears clear that this Court is without authority to review the judgment of the Supreme Court of Colorado and that the petition should be dismissed on that ground. CASE CORRECTLY DECIDED. We think we have shown that this case is one to be determined by general principles of equity jurisprudence and is unaffected by anything found in the Constitution, treaties or statutes of the United States and that this Court is without jurisdiction to review the decision of the Colorado Supreme Court. But, if this case were be- fore this Court on the merits, it has been correctly de- cided and there is no purpose to be served by further review. The decision of the Colorado Court is in full accord with applicable decisions of this Court and of other federal courts and of every state court that has ever passed on a question of similar character. There —_ 26 is no case which supports the monstrous doctrine, ad- vanced in the petition, that the public interest is served by ‘‘dividing the wealth’? by the method eniployed by Hyman and his confederates. Chlordane is the property of Velsicol and defendants have no right to compete in the production and sale of chlordane. I, The starting point in this case is not property, but that the defendants stood in confidential relations to plaintiff with respect to chlordane and its other secret formulas, processes and products. Whether plaintiff has been able to keep the secrets of chlordane and methods of producing it from the public generally is not the issue here. Defendants owe the plaintiff a duty with respect to the formulas, processes and products here involved not owed by the members of the public generally. The dis- advantage of knowing plaintiff’s secrets is a burden de- fendants cannot escape. [Equity will make certain that defendants shall not fraudulently abuse the trust plain- tiff reposed in them. (Dupont Powder Co, v. Masland, 244 U.S. 100, 102; Stone v. Goss, 65 N.J.. Eq. 756, 55 Atl. 736, 737-8; MacBeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 86 Atl. 688, 693; Westervelt v. National Paper & Supply Co., 154 Ind. 673, 57 N.E. 552, 544: Wireless Speciality Apparatus Co. v. Mica Condenser Co., 239 Mass. 158, 131 N.E. 307, 310; Germo Mfg. Co. v. Combs, 209 Mo. App. 651, 240 S.W. 872, 881; Restatement of Torts, See. 757, Vol. IV, pp. 5-10.) These cases dispose of the first division of defendants’ argument. Pet. pp. 17-24. The evidence shows beyond point of dispute that plain- tiff diligently employed every reasonable means to keep 27 its secret formulas, processes and products out of the public domain. No defendant denies this. In fact they admit it. (R. Il, 195, 197, 201, 204, 431.) Whatever dis- closures, if any, were made prior to September 13, 1946, were made by or at the direction of Hyman as the opera- ting head of plaintiff. He was the only person financially interested in plaintiff who had any contact with plain- tiff’s patent attorneys. (R. I], 351.) He filed the patent applications relating to ‘‘Velsicol 1068’’ (chlordane) in his own name as the inventor and he had complete con- trol of these applications, domestic and foreign. (R. LI, 350.) Plaintiff did not and could not have taken any action with respect to the pending patent applications re- lating to chlordane prior to the time it procured the assignment of these applications after the conclusion of the Illinois case in late 1949. There is a complete ab- sence of evidence that any stockholder, director or officer of plaintiff other than Hyman, had any knowledge of the filing of the applications relating to chlordane in any of the foreign countries or that they had any knowledge of the practice under the laws of these countries with respect to laying applications open to public inspection. If Hyman by his acts has lessened the protection to which plaintiff is entitled from the general public, he cannot take advantage of his own wrong and seek to insulate himself against answering for his breach of faith. It is conceded that no defendant learned any of plain- tiff’s secrets from the disclosures made by operation of law in foreign countries or by any publication of the United States Department of Agriculture, but they learned what they know about chlordane and the methods of producing it during and in the course of their employ- —_— oe ae ee | eae area MONI Rt Al coh ei NE Seip ie ici Bh 28 ment with plaintiff. They had not only agreed in writing to protect plaintiff in its secrets but the very nature of their employment placed them under obligation to keep in confidence what they learned in confidence. Whatever defense would be available to one who independently dis- covered the same secrets defendants discovered in plain- tiff’s employ, such a defense is not open to the individual defendants who, in breach of their contractual and fidu- ciary relations, have appropriated plaintiff’s secrets to their own use and benefit, nor to the corporate defendant which is the creature and instrumentality of the individual defendants. These defendants conspired and confederated to unlawfully appropriate plaintiff’s trade secrets and to unfairly compete with plaintiff and they cannot escape the consequences of their wrong-doing. It is little wonder that defendants anticipated plain- tiff’s reliance on the several decisions in the litigation between Shellmar Products Company and Allen-Qualley Company and undertook to distinguish the case. (Pet. p. 20). The reasoning of these opinions is sound, is in harmony with settled law, and has never been challenged in so far as it has any application to the problems at bar. They completely dispose of defendants’ contentions that the disclosures with respect to the foreign applica- tions relating to chlordane, if there were any disclosures, can in any wise affect the rights and privileges of plain- tiff as against defendants. The District Court (31 F. 2d 293) awarded Allen-Qualley an injunction notwith- standing it appeared that the confection wrapper made under plaintiff’s secret process might infringe on another covered by an outstanding patent belonging to a third person, holding that the question involved was the valid- ity in equity of the acts of defendant in receiving in con- fidence a disclosure of plaintiff’s secrets and appro- af 29 priating them to its own use. The Court of Appeals for the Seventh Circuit affirmed this decree. (36 F. 2d 623.) Thereafter defendant filed a bill of review in the District Court to modify the decree of injunction on the ground that the trade secrets of plaintiff had been disclosed to the world through the issuance of United States, British and Canadian patents covering the method and machine involved, and the District Court dismissed this complaint for want of equity. The Court of Appeals affirmed this decree with an instructive opinion, (87 F. 2d 104,) and this Court denied certiorari. (301 U.S. 695.) The facts in that case presented a much stronger situation for the defendant than is presented for the defendants in the ease at bar, but the Court of Appeals held in line with the settled law that whatever the opportunities open to the public generally, the defendant, having violated its trust, was barred in equity from using plaintiff’s pro- cess. It would be difficult to find a case more nearly in point on the facts and equities with the case at bar. The contention that this decision of the Seventh Cir- cuit is in conflict with the decisions of the Second Cir- euit in Picard v. United Aircraft Corp. 128 F. 2d 632, and in Conmar Products Corp. v. Universal Slide Fa3- tener Co. 172 F. 2d 150, (Pet. p. 20,) has been answered by this Court. It denied certiorari in the first of the two eases, (317 U.S. 651,) and we must assume that if this Court had considered that the decisions of the two Courts of Appeal were in conflict on an important question of law, it would have taken the Picard case and resolved the conflict. The facts clearly distinguish the cases. In the Conmar case the decision was for the defendant be- cause it was held that he was not under duty under the facts of that case not to disclose the secrets there in- volved. +A eA i Pi. : ees ROTARY RRR 30 Other decisions of federal courts in harmony with the decision of the Colorado Supreme Court in this case on the point that the owner of a trade secret is entitled to protection in equity from its appropriation by one who has learned the secret in confidence, whether the secret is patentable or not, are Hoeltke v. C. M. K emp Mfg. Co. (C.A. 4), 80 F. 2d 912, 922, cert. denied, 298 U.S. 673, and A. O. Smith Corp. v. Petroleum Iron Works Co. (C.A. 6), 73 F. 2d 531, 537, 74 F. 2d 935. Another case which holds squarely against the con- tentions of defendants, and the effect of which they seek to avoid by saying that the trade secrets there were dis- closed by the employer to the employee rather than by the employee to the employer, is Vulcan Detinning Co. v. American Can Co. 72 N.J. Eq. 387, 67 Atl. 339. We sub- mit that the new attorney for defendants has read the opinion in this case carelessly. Vulcan brought suit against American to restrain the latter from using a secret process for separating tin from iron in tin scrap. German scientists discovered the process and one Laernos pirated it. Adolph Kern organized Vulean Metal Re- fining Company and began using the stolen process in this country. Vulean Detinning Company acquired Kern’s company and the process which it kept secret. Franz Assman, one of the original incorporators of Vulcan Metal, had one of four copies of the process in his cus- tody. Subsequently he sold his stock in Vulcan Detin- ning and became associated with American (an as its president. American instal'ed two plants using a process of detinning similar to the process used by Vulean, hav- ing employed for this purpose three former employees of Vulean. These facts show clearly that Vulean, like Velsicol, learned the trade secrets from an employee who, Bein. 31 like Hyman, later undertook to appropriate them. Cer- tainly Vulean did not communicate anything to its or- ganizers who had obtained the secrets before Vulcan was organized. In holding that Vulean was entitled to an injunction to protect its process from use by those who had control of its trade secrets by virtue of the con- fidential relation, the Court said in part: (67 Atl. 343) ‘*Looking, now, a little more closely at the nature of the relief called for by the complainant’s case which we are now enabled to do in the light of the issues that have been actually tried, we shall see, I think, that too much emphasis has perhaps been placed upon the element of absolute secrecy in the process, and that not enough stress has been laid upon the inequitable character of the defendants’ conduct in making a use of such process that was inimical to the complainant’s interests. * * * IT am now saying that the main ground for relief dis- closed by the complainant’s case is the existence of inequitable competition arising from a breach of trust, and hence referable to general principles of equity, and not to those special doctrines by which unpatented secrets are protected. In the application of these general principles the secrecy with which a court of equity deals is not necessarily that absolute secrecy that inheres in discovery, but that qualified secrecy that arises from mutual understanding, and that is required alike by good faith and by good morals. * * * *“*The conclusions to which the foregoing considera- tions lead is that, entirely aside from the technical secrecy of the process or the abstract question of property therein, the complainant is entitled to have its trustee, his associates, and their servants re- strained from using against the interests of the com- plainant the very process with which its trustee was intrusted for its benefit.’ 32 Schavoir vy. American Rebonded Leather Co. 104 Conn. 472, 133 Atl. 582, is another case where the plaintiff was given protection in equity notwithstanding he made use of elements in the manufacture of channel cloth which, in certain combinations, were covered by an old patent which he did not own, since a trade secret will be pro- tected from wrongful disclosure though the owner of the secret cannot secure property rights in it under the patent law. In that case the defendant’s knowledge of the process came to it in confidence, and its defense on the ground that the secret was in the public domain was denied, the Court saying: (133 Atl. 583) “It is open to any one to use the same process, provided they came by the necessary knowledge fair- ly. * * * The knowledge of the process which the defendant had was obtained by reason of the confi- dence reposed in it by the plaintiff and upon its express promise not to divulge the information so secured and to use the formula only as authorized by the plaintiff. * * * In such a situation, the right of the plaintiff to protection in equity is amply established.’’ It is well settled that the fundamental basis for relief in a case of this character is a violation of trust and confidence and that the case must be determined on gen- eral principles of equity and not upon technical rules re- lating to discovery and invention. DuPont Powder Co. v. Masland, 244 U.S. 100, 102; Wireless Specialty Apparatus Co. v. Mica Condenser Co. 239 Mass. 158, 131 N.E. 307, 310; Germo Mfg. Co. v. Combs, 209 Mo. App. 651, 240 S.W. 872, 882; State v. Neal, 152 Fla. 582, 12 So. 2d 590, 592; Meinhard v. Salomon, 249 N.Y. 458, 164 N.E. 545, 546; Nims on Unfair Competition, 4th Ed. Sees. 149- 151. _— : 33 The cases cited by defendants (Pet. p. 19) to the effect that ‘‘a restraint of trade cannot be based upon an estoppel’’ have no relation to the facts in the case at bar. MacGregor v. Westinghouse E. & M. Co. 329 US. 402; Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329 U.S. 394, and Sola Electric Co. v. Jefferson Electric Co. 317 U.S. 173, presented the question whether a li- eensee by virtue of his license agreement is estopped to challenge a price-fixing clause by showing that the patent is invalid and that the price restriction is accordingly unlawful because not protected by the patent monopoly, and it was held that this defense was available to the defendant. These cases came up through the federal courts and in each case the Sherman Anti-Trust Act was spe- cifically pleaded as a defense. In this case no title, right, privilege or immunity asserted by the defendants grows out of the Sherman Anti-Trust Act and in such situation no federal question is presented. (Los Angeles, etc. Co. v. Los Angeles, 217 U.S. 217, 228; Allen v. Arguimbau, 198 U.S. 149, 155; Alen v. Southern Pacific R. Co. 173 U.S. 479, 489; Miller v. Lancaster Bank, 106 U.S. 542, 544; Long v. Converse, 91 U.S. 105, 113; Hale v. Gaines, 22 How. 144, 160; Montgomery v. Hernandez, 12 Wheat. 129, 132.) It was never the purpose of the Sherman- Anti-Trust Act to protect the possessor of stolen prop- erty. Scott Paper Co. v. Marcalus Mfg. Co. 326 US. 249, presented the question whether the assignor of a patent is estopped by virtue of his assignment to defend a suit for infringement of the assigned patent on the ground that the alleged infringing device is that of a prior art expired patent, and of course it was held that the defense was available. No such question is presented by the record in this case. ; a To hold, as defendants suggest this Court should do, that an employee may invoke the anti-trust laws as a defense to a violation of his fiduciary and contractual obligations to his employer would open the door to fraud and breach of trust. The obligation of an employee, whether imposed by express contract or arising from the relationship of the parties, not to appropriate to his own use the trade secrets of his employer is clearly not an agreement in restraint of trade. Competition is unlawfully restrained only when competitors who have a right to compete with each other are precluded from so doing. Defendants, as the Colorado Supreme Court has properly found, have no such right so far as chlor- dane is concerned. It is the property of plaintiff. Defend- ants have no rights in or title to it. The argument that plaintiff has adopted the acts of Hyman in filing the chlordane applications in foreign countries (Pet. p. 21) does not change the fact that Hy- man claimed to be the owner of the patent applications relating to chlordane, that he filed the applications for his benefit and not for the benefit of plaintiff, that he had complete control of the filing and the prosecution of the applications and that plaintiff got no control of these applications until after it had won its suit in Illinois to compel Hyman to assign these applications to it. Plaintiff’s control came after the damage was done. Neither reason nor authority supports the argument of defendants (Pet. p. 22) that Hyman oecupies a shel- tered position because he was the inventor of chlordane and that he did not learn the secrets of chlordane from plaintiff or any of its other employees. Pomeroy Ink Co. v. Pomeroy, 77 N.J.Eq. 293, 78 Atl. 698, is squarely in point against the argument. Eltweed Pomeroy was the —_ 35 president and general manager of Pomeroy Bros. Co. and the trade secrets involved were largely the result of his discoveries and experiments. Pomeroy Ink Co. purchased the assets of Pomeroy Bros. Co., which included the trade secrets. Eltweed Pomeroy became an employee of Pom- eroy Ink Co. and was given charge of promoting the sale of its products which were made by secret processes. After he left the employ of the Company he offered the secret formulas and processes to others, claiming that he had the right to sell these formulas and processes because he was the inventor. Disposing of this defense, the Court said: (78 Atl. 699-700) ‘‘The present case is not one where complainant’s right to the use of the formulas and formula notes, as against the defendant, depends upon the principle of ‘confidential communication, for, as to this feature of the case, the defendant while an officer and manager of the company was himself the inventor or dis- coverer of the process, and communicated it to the company. But the vital question in the case is whether the defendant, the discoverer or inventor of the processes disclosed by the formulas, transferred to the Pomeroy Bros. Co. the exclusive right to the formulas and formula notes as their property. If so, such transfer is binding on him and passed with the assets of the company to the complainant.’’ After analyzing the facts and finding that the complain- ant, Pomeroy Ink Co., was the owner of the formulas and processes, the Court applied the principle of the eases which grant relief for breach of confidential com- munication of trade secrets and held that Pomeroy should be enjoined from disclosing the secrets and appropriating them to his use and gain. Since it has already been finally determined by the decree of the Illinois court that plain- tiff is the owner of the chlordane secrets, it follows that 36 Hyman and his confederates have no right to use these secrets in competition with plaintiff notwithstanding Hy- man is the inventor. Another case holding that the inventor should be en- joined from carrying away the invention belonging in equity to his employer and disclosing it to a competitor is Wireless Specialty Apparatus Co. v. Mica Condenser Co., 239 Mass. 158, 131 N.E. 307. Wireless had been engaged in making radio condensers for the United States during World War I and on the signing of the Armistice it became apparent that the industry would be seriously affected, if not ended, unless the company could produce magneto condensers to be sold to manufactures of elecri- cal apparatus. After extensive experiments plaintiff’s em- ployees succeeded in bringing about the necessary changes. McPherson, one of the employees, made application for letters patent on the inventions and he assigned these inventions to a competing company. The Court held that, whatever the decision in a separate case to require the assignment of the patent applications (the Illinois case by plaintiff against Hyman, 405 Til. 352), plaintiff was entitled to protection from misappropriation of the secrets obtained by its employees in the course of their employ- ment (the case at bar), saying: (131 N.E. 310) “Although the first suit is decided on the basis that the plaintiff is entitled to relief because it is the equitable owner of the inventions already considered, it does not follow that it can get nothing under the second bill. It may be that no patent will issue be- cause of lack of novelty or other reason and that the plaintiff will in fact receive nothing of value under any decree entered in the first suit. The fact that an invention is patentable does not compel the taking out of a patent, nor prevent the person entitled to it from keeping it secret, nor bar him from equitable — 37 relief against those disclosing its existence and de- tails in violation of trust and confidence, nor as against those who obtain knowledge through such violation with notice and purpose to make use thereof. The fundamental requirement for relief is a violation of trust and confidence.’’ Conclusive against defendants’ position is the fact that Hyman appropriated the secrets of ‘‘237’’, covered by the Herzfeld-Lidov-Bluestone applications owned by plaintiff, in making the compound covered by the chlor- dane applications. Hyman knew nothing about the basic compound ‘‘237’’, which is an essential ingredient of the improved insecticide ‘‘1068’’, or chlordane, until ‘‘237’’ was discovered and developed in plaintiff’s laboratory by plaintiff’s employees who were under contractual and fiduciary obligations to plaintiff to assign the ‘237’ invention to plaintiff. Herzfeld, Lidov and Bluestone com- plied with their duty to plaintiff and assigned the patent applications relating to ‘‘237’’ simultaneously with the execution of the applications. Hyman knew this and as the executive head of Velsicol accepted the assignment for Velsicol. Therefore the phony defense that he did not learn the secrets of chlordane from those in confidential relations to plaintiff blows up in his face. His contribu- tion to the invention of chlordane was to suggest that ‘*237’’ be chlorinated. To his amazement, as well as that of the other chemists employed by plaintiff, this resulted in an entirely new composition of matter which was an unusually effective insecticide and so he became the inventor. To say that these circumstances of ihe invention of chlordane by Hyman insulate him against a suit for accounting for appropriation of the chlordane secrets in wrongful competition with plaintiff is to intro- duce a new conception of equity and honesty. The de- cision in the Illinois case disposed of this defense and held Hyman accountable. II. The questions presented under the second division of petitioners’ argument (pp. 24-37 ) have all been conclu- sively settled by final decisions of the Illinois courts. It does not appear that the distinguished attorney, brought into this case to prepare and present this petition, is familiar with these earlier decisions. Issues squarely presented in Velsicol Corporation v. Julius Hyman, 405 Ill. 352, were the existence, interpreta- tion, validity and enforceability of the agreement between the parties, and the Court made a specific finding that the agreement was executed and delivered as alleged in the complaint, that it covered chlordane and the patent applications relating thereto, and that it was valid and enforceable in equity. The Supreme Court of Illinois affirmed the decree compelling Hyman to assign the chlordane applications and enjoining him and others in privity with him from using the formulas, processes and products covered by the applications and from disclosing them to anyone other than plaintiff. This Court refused to review the decision of the Supreme Court of Illinois. 339 U.S. 966. Where the existence, validity and interpretation of a contract has been adjudicated in one action it is con- clusive hetween the same parties and their privies in another action. Wilson’s Executor v. Deen, 121 U.S. 525, 532; Silurian Oil Co. v. Neal, 277 I. 45, 50; Albertson v. Clark, 70 Colo. 129, 130; Freeman on Judgments, 5th Ed. See. 894. Even if the question of the validity, interpretation and enforceability of Hyman’s agreement with Velsicol were open for review, the decision of the Colorado court is QE EE LOIS SE RIT EIA MGTIO it PATA PLE ALI TG SOW ITS ASR MEN, TE supported by the decisions of all federal and state courts which have dealt with like questions. (New Jersey Zinc Co. v. Singmaster, 4 F. Supp. 967, aff. 71 F. 2d 277, cert. denied 293 U.S. 591; Paley v. DuPont Rayon Co. (C.A. 7) 71 F. 2d 856, 858; Hulse v. Bonsack Machine Co. (C.A. 4) 65 F. 864, 868; O. d W. Thum Co. v. Tloceynski, 114 Mich. 149, 72 N.W. 140, 144.) The individual defendants worked under these agreements for the respective periods of their employment and there was no difficulty in interpretation while the parties were working in harmony. It was only after defendants had violated the agreements and plain- tiff was obliged to bring defendants to account that it occurred to the defendants that the agreements were unduly restrictive and were against public policy. The rule is settled that a party cannot contend after a dispute has arisen for construction of an agreement in violence of the interpretation he has given the agreement in his dealings with the other party during the period they were working in harmony. Magnetic Mfg. Co. v. Dings Magnetic Separator Co. (C.A. 7) 16 F. 2d 739, 741, cert. denied, 274 U.S. 740; Street v. Chicago Wharfing Co. 157 Ill. 605, 614; Hinkle v. Blinn, 92 Colo. 302, 304. The repeated assertion that Julius Hyman and Joseph Regenstein were engaged in a joint venture and that the corporate character of Velsicol Corporation should be ignored has no support in the record. The fact is that Hyman sought Regenstein’s assistance in the organization of a corporation to establish and operate a research laboratory to test, prove and develop some ideas which Hyman had with respect to the use of petroleum refining by-products and to carry on research and experimentation generally in the field of chemistry. (R. II, 178-181, 261.) Hyman had had extensive college training in chemistry _— CueRee TUR Sart 16 Aa {RO BAW EEO Cotte NP SE II ia 2 —— CORBI LD OO LIT IOFIG ITE ALE PEALE EY LOE TONNE LEE ALAM, EAL ELOY. SIE 3 a ’ _ 40 and some experience in research and Regenstein and his business associates in Arvey end Transo relied on Hy- man’s judgment as to the business possibilities. (R. II, 132-135, 267-274.) Plaintiff was regularly organized as a corporation under the laws of Illinois and was regularly conducted as such. Hyman became a director, officer, gen- eral manager and director of research of plaintiff and conducted its affairs as a corporation from the date of its organization in January, 1931, to the date of his resignation in September, 1946. He cannot now challenge plaintiff’s corporate existence and pretend the under- taking was a mere joint venture. (Kardo Co. v. Adams, (C.A. 6), 231 F. 950, 967; Bushnell v. Consolidated I. & M. Co., 138 Ill. 67, 74.) Furthermore, Hyman filed a suit in the Superior Court of Cook County, Illinois, in De- cember, 1946, setting up his rights as a stockholder in Velsicol and sought to set aside certain recapitalization proceedings. This was inconsistent with his claim that he was a partner of Joseph Regenstein and not a stock- holder in Velsicol Corporation. He lost this suit. Julius Hyman v. Velsicol Corporation, 342 Ill. App. 489. Leave to appeal was denied by the Supreme Court of Illinois. 343 Ill. App. ii. The decrees in the Illinois eases could not have been entered except that the Illinois courts found against every contention made by the defendants under Division II of their argument. Defendant Hyman made substan- tially the same arguments in the Illinois cases that he makes here and cited substantially the same authorities. The decrees in these Illinois cases conclude all parties and their privies as to matters essential to said decrees. (Hart Steel Co, v. Railroad Supply Co., 244 U.S. 294, 298; Elmhurst v. Kegerreis, 392 Ill. 195, 203; Clark vy. Knoz, ORE PE TEs OA 41 32 Colo. 342, 348.) Under Section 1, Article IV of the Constitution of the United States full faith and credit must be given to these judicial proceedings in Illinois. Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438-9, Conclusion. The Supreme Court of Colorado has not decided a federal question of substance nor has it decided a case not in accord with applicable decisions of this Court. The decision of that Court rests on adequate and inde- pendent state grounds and under the decisions of this Court there is no authority for further review. Furthermore, the case is correctly decided and pre- sents no new question which would justify this Court in reviewing it if it had the authority. Velsicol Corporation, respondent, prays that this pe- tition be dismissed or denied for the reasons stated in this answer. Respectfully submitted, FLoyp E. Tompson, Ciype E. Sxorey, Joun R. Coen, Attorneys for Respondent. Jounston, THompson, Raymonp & Mayer, 11 South LaSalle Street, Chicago 3, Illinois. Suorey & Woops, 135 South LaSalle Street, Chicago 3, Illinois. ' . “ o*~ ee a Sd Pe LYON EP OTS gO ETT alin --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386417_0871%3A1. Public record. Not legal advice.